United States v. Dominick Poeta ( 2010 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-4039
U NITED S TATES OF A MERICA,
Plaintiff-Appellee,
v.
A DAM R. R ESNICK,
Defendant,
and
D OMENIC P OETA,
Third-Party Respondent-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:05-cr-00009-1—Wayne R. Andersen, Judge.
A RGUED D ECEMBER 10, 2009—D ECIDED F EBRUARY 2, 2010
Before P OSNER, M ANION, and H AMILTON, Circuit Judges.
H AMILTON, Circuit Judge. This case presents issues
arising from the government’s efforts to collect a
criminal defendant’s financial obligations to the gov-
ernment from a third party who received money from
2 No. 08-4039
the insolvent defendant. Defendant Adam Resnick pled
guilty to one count of wire fraud under 18 U.S.C. § 1343for his role in a check-kiting scheme that caused the
failure of Universal Federal Savings Bank. Under the
plea agreement, Resnick would serve prison time and
owe approximately $9.75 million in restitution to Univer-
sal’s insurer, the Federal Deposit Insurance Corporation
(“FDIC”). Resnick was insolvent, so the government
invoked the supplemental procedures authorized by 18
U.S.C. § 3613 to collect some of the money from
appellant Domenic Poeta.1 Poeta was a bookie to whom
Resnick paid significant sums of money to satisfy illegal
gambling debts. After a bench trial in which Resnick
testified and Poeta did not, the district court entered
judgment for the government for $848,197.63 ($647,211.00
in check transactions from Resnick to Poeta, plus prejudg-
ment interest of $200,986.63) under theories of fraudulent
transfer under the Federal Debt Collection Procedure
Act (“FDCPA”) and common-law unjust enrichment.
Poeta has appealed, and we affirm.
I. The Facts
Adam Resnick carried out a check-kiting scheme that
led to the collapse of Universal Federal Savings Bank.
With the help of two co-defendants, Antonette and
Terrence Navarro, Resnick obtained signatory rights
to a checking account at Universal, circumvented Univer-
1
Poeta’s first name is spelled in different ways in the record.
We use his attorney’s spelling, “Domenic.”
No. 08-4039 3
sal’s regulations, and gained access to millions of dollars.
By the time the bank finally failed, Resnick had stolen
approximately $10.5 million. The FDIC stepped
in to protect depositors by paying approximately
$9.75 million to cover the losses.
In the criminal prosecution against Resnick and the
Navarros, Resnick reached a plea agreement with the
government. Under the agreement, the district court
sentenced Resnick to 42 months in federal prison and
ordered him to pay $10,457,825.60 in total restitution,
including $9,750,545.60 to the FDIC.
The government has been able to recover only a
fraction of the restitution judgment against Resnick.
Throughout his check-kiting scheme, Resnick held few
assets and was insolvent. With each illicit withdrawal
from Universal, Resnick became indebted to Universal
for the amount of fraud proceeds he obtained.
Accordingly, the government has sought to trace the
proceeds of the scheme to recover the restitution owed
by Resnick.
A significant portion of the funds that Resnick stole
from Universal went toward feeding his remarkable
gambling habit, including money that Resnick paid to
appellant Domenic Poeta to satisfy illegal gambling
debts. The government presented to the district court
16 checks totaling $647,211. All were drawn by Resnick
on his Universal bank account and were made payable
either to Poeta himself or to “cash” and were negotiated
by Poeta.
4 No. 08-4039
Based on the criminal judgment against Resnick, the
government initiated third-party proceedings against
Poeta under the original criminal caption. Federal law
allows the government to collect financial obligations
under criminal judgments by using federal and state
procedures for collecting civil judgments. 18 U.S.C.
§ 3613(a). On April 9, 2007, the government served a
citation to discover assets directed to Poeta pursuant to
Federal Rule of Civil Procedure 69 and 735 Ill. Comp. Stat.
5/2-1402. Pursuant to the citation, Poeta appeared in
person with counsel on August 23, 2007 to be examined
under oath as to Resnick’s assets. When questioned
about his gambling operations and his association with
Resnick, Poeta repeatedly invoked his Fifth Amend-
ment privilege against self-incrimination.
The government then filed a petition for relief against
Poeta, alleging that Resnick had defrauded Universal of
approximately $10.5 million and had used some of that
money to pay Poeta for illegal gambling debts. The
petition alleged that the transfers from Resnick to Poeta
were fraudulent because they were not supported by
consideration (an illegal gambling contract provides
no value), and that Resnick was insolvent and indebted
to his victim Universal at the times of the transfers. The
government alleged both intentional fraudulent transfer
and constructive fraudulent transfer under 28 U.S.C.
§§ 3304(b)(1)(A) and (B)(ii), respectively. The govern-
ment later added a third theory of unjust enrichment. As
a remedy, the government sought $647,211, plus prejudg-
ment interest.
No. 08-4039 5
Poeta’s answer to the government’s petition failed to
deny any facts relevant to the government’s theories of
recovery. Poeta either admitted the allegations, claimed
insufficient information to admit or deny them, or
invoked his Fifth Amendment privilege against self-
incrimination.
Given the perceived lack of factual dispute, the gov-
ernment filed a motion for judgment on its petition. Poeta
responded by filing a motion to strike the govern-
ment’s motion. Poeta argued that Resnick never right-
fully owned the money that he transferred to Poeta,
from which Poeta concluded that the money was not
properly the subject of a fraudulent transfer claim. Poeta
also argued that he had not received sufficient discovery
from the government to defend the claims against him.
On June 6, 2008, the district court held a trial to resolve
the pending matters. The government offered the testi-
mony of Adam Resnick and six exhibits. Poeta called
three witnesses but did not testify himself. The district
judge heard oral argument on June 30 and July 2, 2008.
On July 23, 2008, the district judge orally announced that
he was finding for the government for the full amount
sought, $647,211 plus prejudgment interest of $200,986.63,
for a total of $848,197.63. The district court entered
this judgment in writing on July 31, 2008, but then
vacated that judgment on August 6, 2008. See R. 142, 143,
144. The district court asked the government to submit
draft findings of fact and conclusions of law, and the
government did so. Poeta filed objections and submitted
an alterative set of findings and conclusions, seeking
6 No. 08-4039
setoff from the final judgment for money he had paid
to Resnick in gambling winnings. Poeta later filed sup-
plemental proposed conclusions of law in which he
advanced for the first time the affirmative defenses of
contributory negligence and failure to mitigate damages.
On September 24, 2008, the district court issued its
Findings of Fact and Conclusions of Law. The district
court found that the government had established
Poeta’s liability on the alternative theories of constructive
fraudulent transfer and unjust enrichment. The court
declined to decide whether Resnick was ever the “lawful
owner” of the funds he transferred to Poeta. If he was
the owner, the district court reasoned, the government
could recover for fraudulent transfer, and if he was not,
the government could recover for unjust enrichment.
Also on September 24, 2008, the district court entered
a new judgment against Poeta for the total sum of
$848,197.63. See R. 155, 156, 157.
Poeta moved to alter or amend the judgment pursuant
to Federal Rule of Civil Procedure 59(e). His motion
reargued the issues of ownership, mitigation of damages,
and contributory negligence. The motion also asserted
for the first time that the post-judgment supplementary
proceedings were not the appropriate vehicle for ad-
judicating the government’s claims and had denied him
due process of law. The district court denied this
motion, and Poeta has appealed.
No. 08-4039 7
II. Ownership and Fraudulent Transfer Under the FDCPA
To establish Poeta’s liability for constructive fraudulent
transfer under the FDCPA, the government was required
to show that the judgment debtor Resnick:
ma[de] the transfer . . . without receiving a reasonably
equivalent value in exchange for the transfer or obliga-
tion; [and]
intended to incur, or believed or reasonably should
have believed that he would incur, debts beyond
his ability to pay as they became due.
28 U.S.C. § 3304(b)(1)(B)(ii).
Resnick’s payments to Poeta satisfied the first element
because an illegal gambling obligation has no legal
value. Under Illinois law, all obligations incurred
through illegal gambling are null and void, and any
such obligation may be set aside and vacated. Illinois
Loss Recovery Act, 720 Ill. Comp. Stat. 5/28-1, 28-7. The
second element was also satisfied because Resnick cer-
tainly should have believed that he was incurring
debts beyond his ability to pay when he defrauded Uni-
versal of millions of dollars, in large part to feed
his gambling habit. Poeta does not dispute these
two elements, but he argues that Resnick made no “trans-
fer” to him within the meaning of the FDCPA
because Resnick never legally owned the (stolen)
money he paid to Poeta.
The FDCPA specifies that a “transfer is not made until
the debtor has acquired rights in the asset transferred.”
8 No. 08-4039
28 U.S.C. § 3305(4). Poeta argues that since Resnick ac-
quired the money through fraud, he was never the
legal “owner” of any funds that he transferred from the
Universal account. Therefore, the argument goes, section
3305(4) places Resnick’s payments to Poeta outside the
scope of the FDCPA, so that Poeta cannot be found
liable on a fraudulent transfer theory.2
The FDCPA’s fraudulent transfer provisions are not
written in terms of legal and rightful ownership. The
key statutory inquiry here is whether Resnick had
“rights in the asset transferred.” There is no doubt that
Resnick fraudulently obtained the money he transferred
to Poeta. His fraud does not mean that he lacked any
“rights” in the money, including the power to transfer
it. As a practical matter, he had full power to draw on the
Universal account and to transfer the money to others.
Resnick used this power to defraud the bank, but this
power was obtained by observing the legal formalities.
Poeta’s assertion that Resnick was not a legal signatory
is incorrect—while Resnick skirted Universal’s private
rules for obtaining drawing authority, nothing in the
2
Poeta points to two excerpts—one from the district court’s
oral decision and one from its final written opinion—to show
that the district court explicitly found that Resnick did not
own the money he transferred from his Universal account. In
both passages, the district court was merely summarizing
Poeta’s position, not adopting it. The district court specifically
declined to adopt Poeta’s argument that Resnick did not own
the money he transferred to Poeta. See R. 155, ¶¶ 17, 37.
No. 08-4039 9
record indicates that his drawing authority itself was
illegal. It was his use of that authority that was criminal.
We find that the requirement of “rights in the asset
transferred” was satisfied here because Resnick had
possession of the money he delivered to Poeta. The fact
that the victims of the fraud had greater rights in the assets
that were transferred does not work to shield Poeta from
this collection effort. It would be odd to interpret the
statute, enacted to provide a remedy for the benefit of
one of those victims, to give greater rights to someone in
Poeta’s position—a bookie receiving stolen money from
a criminal—than to others who receive money without
giving adequate consideration in more innocuous cir-
cumstances.
Although Resnick was not the legal and rightful owner
of the funds transferred in the course of his fraudulent
scheme, he had the legal right to draw on the account
at Universal and the power to transfer the funds at issue,
subject to the rights of victims to pursue remedies
later. Resnick’s transfers of money to Poeta fall within
the scope of the FDCPA, and Poeta is liable to the gov-
ernment for the constructively fraudulent transfers. This
court need not reach the district court’s alternative
theory of unjust enrichment.
III. Use of Supplementary Proceedings
Poeta argues that supplementary proceedings are
inappropriate for both a fraudulent transfer claim and
an unjust enrichment claim, and that he should have
10 No. 08-4039
been able to defend the government’s claim in a
separate civil action with the full panoply of pretrial
and trial procedural rights. Poeta first advanced this
argument in his motion to alter or amend judgment, after
the district court had already ruled against him on the
merits. Poeta’s failure to raise his procedural objections
earlier, when any problem could have been remedied
by the district court, amounts to a waiver and precludes
this challenge on appeal.
A motion to alter or amend judgment under Federal
Rule of Civil Procedure 59(e) may be used to draw the
district court’s attention to a manifest error of law or fact
or to newly discovered evidence. E.g., Bordelon v. Chicago
School Reform Bd. of Trustees, 233 F.3d 524, 529 (7th Cir.
2000). A Rule 59(e) motion “does not provide a vehicle
for a party to undo its own procedural failures, and it
certainly does not allow a party to introduce new
evidence or advance arguments that could and should
have been presented to the district court prior to
the judgment.” Id. We use a deferential standard when
reviewing denials of Rule 59(e) motions and will reverse
only if the district court abused its discretion. LB Credit
Corp. v. Resolution Trust Corp., 49 F.3d 1263, 1267 (7th
Cir. 1995) (affirming denial of Rule 59(e) motion that had
first presented argument after district court had ruled
against appellant on the merits; new argument had been
waived).
Poeta failed to make any argument challenging the
appropriateness of supplemental proceedings until after
the district court had conducted a trial and entered final
No. 08-4039 11
judgment against him. A Rule 59(e) motion does not
provide Poeta an opportunity to remedy this procedural
failure. See Bordelon, 233 F.3d at 529 (affirming denial of
Rule 59(e) motion attempting to correct procedural omis-
sions). Apart from genuinely jurisdictional issues, a
party may not litigate a controversy to completion and
then challenge the forum or its procedures only after
he has received an unfavorable final judgment. The
district court did not abuse its discretion when it denied
Poeta’s Rule 59(e) motion.3
Even if Poeta’s challenge to the supplemental proceed-
ings had been timely, he has not shown how the pro-
ceedings violated his due process rights. Poeta had ample
notice and an opportunity to be heard. He presented
evidence and argument on his own behalf, but the gov-
ernment’s evidence was stronger. Poeta also claims that
his inability to implead Terrence Navarro and Larry
Elisco, the other two individuals with access to Resnick’s
account at Universal, violated his due process rights.
These two individuals have nothing to do with the
money at issue in this case. The money in question
consists only of payments made directly from Resnick to
3
Poeta contends that he raised the issue in closing arguments.
Even if that were timely, which it was not, the quoted portion
of closing arguments addressed the substantive ownership
issue discussed above, not the procedures used to resolve the
issue. The closing argument transcript reveals no challenge
to the supplemental proceedings. Such a challenge was also
absent from Poeta’s written filings submitted before final
judgment.
12 No. 08-4039
Poeta. Even if Navarro and Elisco shared criminal or civil
responsibility for Resnick’s fraud, the facts show that
Resnick himself delivered hundreds of thousands of
dollars to Poeta to pay illegal gambling debts. Those
were fraudulent transfers, and the government was
entitled to seek relief from Poeta alone.
Poeta also complains of his inability to discover cer-
tain “critical elements of the case,” such as Resnick’s
financial condition and his initial statement to the FBI,
which Poeta suggests could have been used to impeach
Resnick. These “critical elements” are in fact irrelevant
given the lack of factual dispute in this case regarding
Resnick’s payment of illegal gambling proceeds to Poeta.
Poeta has never denied, much less proffered evidence
to controvert, the fact that Resnick paid him $647,211 in
illegal gambling losses. Nor is there any doubt about
Resnick’s insolvency as he accumulated massive debts
to the bank he was looting.
Finally, Poeta claims that he was denied the right to
trial by jury. He never asked for a jury. If Poeta thought
he had a right to trial by jury, Federal Rule of Civil Pro-
cedure 38(b) required him to serve the government with
a written demand for trial by jury within 10 days (at that
time) of filing his response to the government’s petition
for relief. His failure to do so waived his right to trial by
jury. See Fed. R. Civ. P. 38(d); Members v. Paige, 140
F.3d 699, 701 (7th Cir. 1998). “[F]ailure to object to a
non-jury factfinding proceeding waives a valid jury
demand as to any claims decided in that proceeding, at
least where it was clear that the court intended to make
No. 08-4039 13
fact determinations.” Lovelace v. Dall, 820 F.2d 223, 227
(7th Cir. 1987). Poeta did not state his desire for trial by
jury until after the court had entered judgment against
him, and it was always clear that the district court in-
tended to make fact determinations. Poeta waived any
arguable right to trial by jury in this action.
IV. Affirmative Defenses
Poeta also argues that the district court erred by
rejecting his affirmative defenses of contributory negli-
gence and failure to mitigate damages. Poeta first raised
these affirmative defenses after the district court had
stated its intent to rule against him on the merits, when
Poeta submitted supplemental proposed conclusions of
law. This was too late to raise new affirmative defenses
as a matter of right. The district court did not abuse
its discretion by rejecting these defenses raised for the
first time after the trial had concluded and after the
court had stated its intention to rule against Poeta.
Poeta also asserts that the money judgment against him
should be subject to setoff by subtracting three payments
that he says he made to Resnick on winning bets from
the amount that Resnick paid him on losing bets. 4 The
4
The three payments were supposedly in the amounts of
$50,000, $70,000, and $2.2 million. Resnick testified to the
$50,000 payment, and a letter from the FDIC shows the
$70,000 payment. To prove the $2.2 million payment, however,
(continued...)
14 No. 08-4039
problem for Poeta is that neither federal nor Illinois law
supports a subtraction of offsetting payments on other
illegal gambling debts from the judgment against Poeta.
Poeta argues that he should receive “equitable consider-
ation” for the payments made to Resnick, despite the
illegal nature of their gambling arrangement. To sup-
port this contention, Poeta points to United States v.
Santos, 553 U.S. ___, 128 S. Ct. 2020 (2008), a Supreme
Court decision interpreting the word “proceeds” in the
federal money laundering statute, 18 U.S.C. § 1956(a), to
mean “profits,” and not gross “receipts” when there is
no legislative history to the contrary. Id. at 2031.5 Poeta
4
(...continued)
Poeta provides only excerpts from Resnick’s fictionalized
book describing his struggle with gambling addiction. These
colorful book excerpts were certainly hearsay, and even if they
were taken at face value, they would not support a finding that
Poeta paid $2.2 million of his own money to Resnick. According
to the fictional text provided to the court, any payment of this
amount would have come from an offshore operation (the
book refers to “the guys in Antigua”), not from Poeta’s ac-
count. The fictionalized excerpts also fail to indicate that the
payment was made at all. They indicate only that the sum
was owed to Resnick. See App. F. If we were to consider any
offset, it would be in the amount of $120,000, the total of the
two smaller payments.
5
Poeta actually focuses on the earlier Santos opinion by this
court, 461 F.3d 886 (7th Cir. 2006), and a prior Seventh Circuit
case, United States v. Scialabba, 282 F.3d 475 (7th Cir. 2002). The
Supreme Court’s analysis was substantially similar to this
(continued...)
No. 08-4039 15
concludes that he should be liable only for the net
profit he received from Resnick.
Unlike Santos, this case does not require interpretation
of an ambiguous statutory term. See Santos, 128 S. Ct. at
2024. No ambiguity of terms exists here, and Poeta does
not argue otherwise. The Santos Court’s decision to con-
strue “proceeds” to mean profits and not gross receipts
rested entirely on the rule of lenity. See id. at 2025-34.
The Santos Court summarized the function of the rule
of lenity:
The rule of lenity requires ambiguous criminal laws
to be interpreted in favor of the defendants subjected
to them. This venerable rule . . . vindicates the funda-
mental principle that no citizen should be held ac-
countable for a violation of a statute whose com-
mands are uncertain, or subjected to punishment that
is not clearly prescribed.
Id. at 2026 (citations omitted). The present case deals with
section 3304(b) of the FDCPA, a law that suffers from no
ambiguity here: it applies to transfers from a debtor to a
third party, not those going in the other direction. Nor
does section 3306(a) (providing the remedies available
to the judgment creditor) impose criminal liability or
punishment on the transferee. It simply allows the court
to order that the transfer be unwound. See 18 U.S.C.
§§ 3304(b), 3306(a).
5
(...continued)
court’s, and the Supreme Court’s Santos opinion is the most
recent and most authoritative word on the matter. We restrict
our analysis to the Supreme Court’s Santos decision.
16 No. 08-4039
In its effort to collect from Poeta, the government may
rely on both federal and state law. See 18 U.S.C. § 3613. The
Illinois Loss Recovery Act applies here, and it deems void
all of the illegal gambling transfers at issue, in either
direction. 720 Ill. Comp. Stat. 5/28-7. Section 28-8 of the
Act provides a cause of action by which anyone may sue
on behalf of an illegal gambling loser to recover from
the winner the total amount lost:
(a) Any person who by gambling shall lose to any
other person, any sum of money or thing of value,
amounting to the sum of $50 or more and shall pay or
deliver the same or any part thereof, may sue for and
recover the money or other thing of value . . . .
(b) If within 6 months, such person . . . does not in fact
pursue his remedy, any person may initiate a civil
action against the winner.
Id. at 28-8. The statute provides for recovery of all that is
lost, not the net of the gambling exchanges. The Illinois
Supreme Court long ago explicitly rejected an attempt to
use winning payments as a setoff, reading a prior
version of the statute to refer to recovery of every
instance of loss and not to the net loss over some ex-
tended period of time. Johnson v. McGregor, 157 Ill. 350,
352-53, 41 N.E. 558, 559 (Ill. 1895). The purpose of the
statute is not simply to undo illegal gambling trans-
actions but “to deter illegal gambling by using its
recovery provisions as a powerful enforcement mecha-
nism.” Vinson v. Casino Queen, Inc., 123 F.3d 655, 657 (7th
Cir. 1997). Accordingly, Illinois law voids all of Resnick’s
illegal gambling payments to Poeta and bars Poeta’s
belated setoff defense.
No. 08-4039 17
The judgment of the district court is A FFIRMED.
2-2-10